Cognizant flags reputational risks in offshore outsourcing

BENGALURU: Cognizant flagged risks from potential anti-outsourcing legislation in its annual report released on Thursday, warning that such measures and persistent negative perceptions around offshore services could impair its ability to serve clients and weigh on its business and financial performance. The company also highlighted reputational risks linked to offshore outsourcing, including allegations of job displacement and the theft or misuse of sensitive client data, particularly involving service providers in India. This marked the first time Cognizant extensively called out risks associated with offshoring.“The practice of outsourcing services to organisations operating in other countries is a topic of political discussion in the United States, which is our largest market, as well as other regions in which we have clients,” the filing said. “For example, in the United States, measures aimed at limiting or restricting the performance of services from an offshore location or imposing burdens on US companies that utilise such services were put forward at both the federal and state levels to address concerns over the perceived association between offshore outsourcing and the loss of jobs domestically. If any such measure is enacted… our ability to provide services to our clients could be impaired,” it added. Cognizant noted that its US operating subsidiary relies on a significant number of skilled workers holding H-1B and L-1 visas and could face higher costs and processing delays if new laws, regulations, policy changes, or executive orders take effect. The company’s workforce rose to 351,600 employees as of December 31, last year, up by about 14,800 from 336,800 a year earlier, reflecting steady hiring. India continued to account for the bulk of the workforce, with headcount increasing to 256,900 from 241,500—an addition of roughly 15,400 employees.In contrast, North America saw a slight decline to 41,600 from 42,800, while Continental Europe fell to 14,600 from 15,700. Headcount in the United Kingdom also dipped marginally to 7,800 from 8,200, even as employee numbers across other regions rose to 30,700 from 28,600. Cognizant also cautioned that the use of emerging technologies, including generative AI, in its offerings could expose the company to additional risks if these tools fail to perform as expected, potentially leading to cost overruns, project delays, financial penalties, or reputational damage. The company added that some contracts tie a portion of its compensation to performance metrics such as cost savings, revenue growth, business outcomes, and adherence to timelines. These provisions can increase variability in revenues and margins and previously resulted—and could again result—in significant losses on certain contracts.